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Article - Users of Accounting Information

Diposting oleh Dwi Wahyudi | | | 0 komentar »

The aim of all accounting information is to provide the particular user with relevant and timely data to make decisions. Who are these users of accounting information and what decisions do they need to take? Possible users include :

1. Shareholders of limited companies will be influenced in their decision to remain investors or to increase/decrease their holding by receiv-ing information about the financial performance and financial posi-tion of their company. This usually occurs twice a year in the form of a profit and loss account and a balance sheet relating to the first half-year and, later on, the full year.

2. Owner-managers of non-incorporated businesses will require the above information but they will also be privy to more detailed and more frequent information about the business’s financial affairs.

3. Management in companies range from director level down to super-visor level. Each person requires accounting information to help them in their role. Supervisors may be concerned with operating costs for a very small part of the undertaking. Directors need to control the overall performance of the company and make strategic financing and investment decisions. Middle management need feedback on whether they are meeting their financial targets.

4. Suppliers need to assess the creditworthiness of potential and exist-ing customers when setting the amount and period of credit allowed. This will partly, if not mainly, be based on the financial history of each customer so the supplier’s accountants will assess the latest profit and loss account and balance sheet. Other data on payment history may be obtained from credit agencies, for example, Dun & Bradstreet, to assist in this decision.

5. Customers also need to be reassured, in this case to minimize the risk of their supplies drying up and disrupting their own output. Firms entering into a joint venture will also need mutual reassurance. Similar checks to those outlined above for suppliers will need to be carried out. This approach is outlined in Chapter 18.

6. Employees and their representatives have a vested interest in the financial health and future prospects of their employer. They rely on an assessment of the published accounts by experts for this.

7. Government levies tax on the profits earned by businesses and value added tax on the sales value of most industries. Tax authorities rely on the information provided by companies for these purposes.

8. Competitors can make some comparisons, for example, sales per employee, from published accounting data in a process known as benchmarking. This may provide clues to areas where performance may be improved particularly if explanations of differences in operat-ing systems can be obtained.

9. Lenders need to be assured that their capital is safe and that the borrowing company can service the loan or overdraft adequately, so again the financial statements of profit and loss account and balance sheet will be examined from this viewpoint.

It can be concluded from the above that most users of accounting information are drawing on that provided in the published accounts. Only management have access to more detailed, non-published financial information within a company.

From : Graham Mott

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